Magellan completes sale of human-services unit

National Mentor proceeds to help pay down debt

March 13, 2001|By Gus G. Sentementes | Gus G. Sentementes,SUN STAFF

Magellan Health Services Inc. completed the sale of its human-services division for $110 million in a deal that will help the company pay down its debt and focus on its core business of behavioral managed care, company officials said yesterday.

The Columbia-based company sold its National Mentor division to an entity formed by management from Mentor and Madison Dearborn Partners, a private equity investment firm.

Magellan sold Mentor for $100 million in cash and a $10 million interest-bearing promissory note. It plans to use $50 million from the sale to pay down its revolving credit facility and $50 million to reduce its term debt. The sale will be reflected in Magellan's fiscal second quarter, which ends March 31.

The sale is the latest example of Magellan jettisoning a costly service-provider business as it seeks to trim debt and streamline operations. In December, the company sold for $10 million a Canadian subsidiary that ran employee-assistance programs.

"I think they got a fair price [for Mentor]," said Tom Shinkle, a health care analyst with Imperial Capital LLC, an investment bank in Beverly Hills, Calif.

"I think the refocusing on the behavioral health is a good strategy. The management certainly did a good job. It made money, it was growing nicely."

Mentor has about 6,000 employees and is based in Boston. Magellan employees in Maryland will not be affected by the sale, said Erin Somers, a Magellan spokeswoman.

Magellan accumulated more than $1 billion in debt in recent years as it spent money to transform itself from an operator of mental hospitals to a managed care organization for mental health. "We do have, as an organization, quite a bit of debt," said Somers. "One of our key strategies to help address that is to sell off noncore assets to help reduce that debt."

Magellan, when it was called Charter Medical Corp., acquired Mentor in 1995 for roughly $50 million. Magellan has more than 70 million policyholders.

Shares of Magellan lost 19 cents to close at $9.01 on the New York Stock Exchange yesterday.

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